”We definitely foresee a leveling off in sales growth this year,” said Jay McIntosh, Americas Director of Consumer Products for Ernst & Young L.L.P. “However, there are a number of positive factors—such as improvements in disposable income, increased corporate spending, and relatively low unemployment—that will help to maintain sales.”

McIntosh added, “Another factor that shouldn’t be overlooked is that large sums of money from insurance claims and the federal government will be pumped into the economy to help rebuild the Gulf Coast. The bottom line is that some companies will do well while others struggle—much depends on the income bracket of their core customers and the innovation or brand strength of their product lines.”

According to the Ernst & Young forecast, ongoing polarization between high-income and low-income consumers will continue to squeeze mid-range retailers. This will force more retail restructuring through a mixture of consolidations, acquisitions, bankruptcies and buyouts from private equity firms. In turn, consumer products companies will have to contend with a smaller pool of more powerful retailers that can more aggressively dictate pricing, delivery terms and assortments.

Faced with increases in raw material and packaging costs, manufacturers will pressure retailers to pass along price increases to their customers, the forecast said. However, price increases at the retail level are more likely to come from the addition of upscale goods and increased private-label assortments.

Discount retailers will continue to rival national brands with their own private label merchandise, presenting manufacturers with their most significant challenge in 2006 and beyond, according to Ernst & Young. Only those manufacturers with the top one or two brands in a category will have pricing power with retailers and be resilient against private label. [April 2006 PET AGE]